What happens if you don't pay a payday loan? Unfortunately, you may wind up in an even tougher situation than the one you were in when you took the payday loan in the first place. Although these loans are normally made for small amounts of less than $500, it is still important to pay them back to avoid a stiff penalty.
What are payday loans?
Payday loans are a form of lending that many consider to be predatory. An individual can obtain money without a credit check, but at very high penalties. For example, if a person borrows $100 from a payday loan business, they will have to pay back $125 when their paycheck is available. In some cases, the payday loan penalty will be much higher. Most of the time, though, the percentage rate hovers around 25%, which is many times more than percentage rates on regular loans.
These loan types are popular in lower-income communities, where traditional lending methods are often out of the reach of the residents. For that reason, plus the high percentage rate, many people feel that payday loans take advantage of people who are in a financially tight situation.
Why are payday loan penalties so high?
Payday loan debts are much higher than the debt you would incur through normal channels because the payday loan company is taking a large risk by lending to people without running credit checks. They take the person's work number and home number in addition to proof of employment. Although the individual is required to come back and pay the loan off on the day they get paid, some people choose not to show up. Since the risk of default is so high, so are the penalties.
What happens when you don't pay off a payday loan?
If you refuse to come in to pay your payday loan as you should, or if you simply cannot pay, the payday loan business can take several courses of action. The first step that the payday loan company will take is to keep increasing the amount of your interest. The interest will add up until you will owe much, much more than you borrowed to begin with.
The next step the lender can take is to go to court because you haven't fulfilled your obligations. When you obtained the loan, you signed paperwork that indicated you promised to pay it back. This document is legally binding. If the payday loan business gets a judgment against you, you will be responsible for the court fees as well. Finally, they can take extra steps to obtain liens on your property and your home in order to get the loan paid.
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